Lets Fight!!! - Turnkey BRRR Service vs Build the Team BRRR Strategy

[Matthew Irish-Jones]

After 15 years of being of Property Management, Realty and now construction, I am 100% on the Turnkey side. I no longer believe its possible to "assemble the team" and pull off a BRRR. Pulling off a BRRR means a 5% or higher cash on cash return after refinance.

Reasons I don't believe its possible:

1. The Real Estate Agent Problem - no high performing Real Estate agent wants to run around looking at 50K-100K properties listed on the MLS that pay $1500 dollar commissions. The BRRR is highly complex, you need a ton of numbers, rehab, ARV, rental rates after construction and are 5X the work of a regular investor sale or residential sale. Maybe you can negotiate a higher flat fee for an agent, but then you are paying more for a property off the MLS. Unless that agent has GC knowledge and is spot on with projections (highly unlikely) you are overpaying and not receiving better service.

2. The GC Problem -  No GC wants to run around providing 10 quotes for properties you don't know if your going to buy or not.  No one cares that you are going to do hundreds of thousands of dollars of "potential work."  Good GC's have millions of dollars of work coming in and high close rates from reliable clients.  Nobody wants to work with an investor assembling a team that needs someone else to run numbers for him on his first 10 properties he might buy. 

3.  The Property Management Problem  - Property managers will provide some loose rental comps, but a leasing agent and a GC have WAY different standards for what rent ready means.  When the numbers do not work after rehab and you can't get the rent you thought...  you are headed towards finger pointing.  Who is to blame?  The rental comps from the PM?  They thought more work would be done.  Or is it the GC's fault?  You wanted to control costs so he didn't get to everything.

4. The Pro Forma Problem - BRRR's are complex. Quotes take time. ARV's are a moving target that move every time the Scope of work changes. The rental projections change with every amenity that gets added or skipped. Who is in charge of the Scope of Work? The Agent? The Investor? The GC? The Property Manager? All of these parts have to fit together like a puzzle. Otherwise the investor is left holding the bag with a bunch of separate companies and independent contractors pointing fingers.

Two asterisks to the above:  

*** There is one exception to this rule.  A local investor who manages all of the above subs himself, writes the SOW himself, and has a lot of experience doing so can pull it off.  

**** Most Turnkey BRRR companies are NOT actually turn key companies. They assemble the team and pretend to be turnkey. I am only referring to actual Turnkey companies that are fully staffed with W-2 employees and handle everything in house from Acquisition to execution.

[Henry Clark]

OP I would take your discussion two different ways.

1.   Your first asterisk.  I would think this is 90% of all Brrrrr investors.  The out of state or passive hands off investors are built to lose money in a Brrrrr.  It’s not the GC or Realtors job to make you money.  If your local and not just a one and done deal, your team or contractors will gravitate to you.

2.  Move up in Market.  Who says it has to be a $50,000 to $100,000 unit.  Find the ugliest house in a great older neighborhood in the $400k to $800k range depending on market.  This leverages your and everyone’s effort on a unit.  

Change your buy box.